Brussels standoff over markets regulator

Some people are out to clip the wings of Europe’s Paris-based markets watchdog.

The campaign against the European Securities and Markets Authority — led by the European Parliament and a group of countries — is intended to stop the apolitical, technocratic body from expanding its mandate.

It is intended to water down, possibly derail, proposals pushed by the European Commission in Brussels that bite into financial rule-making powers currently held by national authorities. The Commission says its plans to boost ESMA are necessary to stabilize Europe’s financial system.

ESMA has already gained greater powers with the launch of a major revision of market rules (known by the unlovely acronym MiFID II). Under the oversight of Steven Maijoor, a low-key but ambitious Dutch financial regulator,the agency has significantly expanded its remit since its birth in 2011.

Last year, the Commission proposed to give it a bigger budget and staff. Unveiling the proposals in September, Valdis Dombrovskis, the Commission vice president for financial services, said the EU should “act as one player … More integrated financial supervision will make the economic and monetary union more resilient.”

ESMA is critical to the French capital’s push to become the EU’s post-Brexit financial center.

The proposals have irked many EU countries, particularly Ireland and Luxembourg, which don’t want to get big-footed by a stronger ESMA. All parties in the Parliament, from left to right, appear to be opposed. The German MEPs who are leading the negotiations sound the most aggrieved by the proposals.

“It will be tough to get it through before the end of this mandate [in 2019]. I’m afraid it will take a lot of debate, a lot of discussions between political groups, the Commission, the industry and with national supervisors,” said Wolf Klinz, a German MEP from the Alliance of Liberals and Democrats for Europe.

City on the Seine

The Paris-based agency does have a powerful backer in France. The head of the French regulator AMF, Robert Ophèle, said in November that financial supervision in the EU should be carried out by one European authority, calling the strengthening of ESMA’s role an “urgent” necessity.

ESMA is critical to the French capital’s push to become the EU’s post-Brexit financial center. Late last year, Paris won the race to host the London-based European Banking Authority (EBA) after the U.K. leaves the bloc in 2019. As part of his own drive to reform and revitalize France, President Emmanuel Macron has actively courted financiers to come over to France.

The Commission proposals would be a small step toward turning ESMA into a European version of the powerful U.S. Securities and Exchange Commission. It would gain supervisory powers, including on key new regulations for the EU such as on market abuse. It would also be allowed to adopt measures that would restrict the use of certain products it deems to be risky.

These changes would leave ESMA a relative giant among the so-called European Supervisory Authorities, which also include the EBA and the European Insurance and Occupational Pensions Authority (EIOPA), the insurance equivalent of ESMA.

ESMA’s staffing would jump by 156, almost doubling its current 200 employees. For ESMA, 97 of those additional staff members will work on supervisory tasks. Additional IT costs, estimated at €10.2 million for 2019-2020, and translation costs, estimated at €1.8 million, would also be covered for the three ESAs. The changes would put ESMA way ahead of its two counterparts — the EBA is proposed to get 29 employees in addition to its current 150 or so staff members, while EIOPA is slated to add 35 to its current 140.

For ESMA, this is welcome news, of course. It vindicates seven years of its efforts to find its feet as a new supervisor.

The agency hasn’t been shy about asking for more. Maijoor on several occasions has called for ESMA to be granted more authority in areas such as supervisory convergence and oversight of non-EU firms. The revised MiFID has put it front and center in implementing changed trading and transparency rules for all firms, ranging from banks to pension funds.

German blowback

The big concern for MEPs and member countries is where this leaves the national competent authorities — the 28 EU national regulators that make up ESMA’s board (plus the three EEA non-voting members).

Certain countries in the Council and Parliament are looking to change the Commission’s proposal on overhauling the ESAs by watering down the extra powers foreseen for ESMA.

“I’ve been critical of the strengthening of ESMA’s powers from the beginning,” said Burkhard Balz, a German EPP member and rapporteur for the file in the Parliament. “ESMA is definitely in the middle of the interest [in the ESAs file].”

“The reception has not been too positive across the board,” said Klinz. “The national supervisors feel they are in close contact with the industry and know best. They’re afraid now the European super institution will tell them what to do and how. They feel they’ll in a way be degraded.”

According to a spokesperson for Germany’s finance ministry, the case for a “fundamental shift towards a more centralized model” in the Commission’s proposal has not been sufficiently made.

“We need high supervisory quality without additional, expensive bureaucracy, but we do not believe that the Commission’s proposals live up to this,” the spokesperson added. “Making the European Supervisory Authorities ‘supervisors of the supervisors’ will slow down decision-making and lead to rising costs for firms without any benefit.”

To house its extra employees, it looks like ESMA will get a new home, too. The watchdog has put out multiple tenders asking for a property advisory firm to help it in its search for future premises, relocating from its current headquarters in the posh Invalides neighborhood of Paris.

The Parliament’s rapporteurs are set to publish a report on the Commission’s proposals soon, and the Council will discuss the file under the Bulgarian presidency over the next six months. The topic will be prioritized in the Council, and the Parliament’s first debate on the proposals took place last week. But given the backlash, it’s unclear if and when the three-way discussions between the two and the Commission will begin — the final process to formalize the proposals.

The only thing certain is that conversations are expected to be thorny — like in earlier meetings of finance ministers.

G127

What is the reason Germany wants to maintain control I wonder: if their regulator (and other national regulators) are honestly good at what they do I see no reason why it should be more centralised. But if this is more a matter of preventing actual regulation (like during Dieselgate) a stronger regulator might be a good option.

Posted on 1/31/18 | 8:27 AM CET

wow

Dear France.

Why always trying to be someone else? You are lovely the way you are , but you are not London and never will be. Remember that time you wanted be the ‘new japan’… had to devalue your currency to 10 cent on the dollar. It was a nightmare you keep repeating the same mistake trying to force private businesses to do things they are never going to do:

From the new york times 1982:

ESSAY; THE BATTLE OF POITIERS – New York Times
By William Safire
Published: November 22, 1982

‘The Second Battle of Poitiers is now being fought. France’s Socialist Government, determined to protect the video tape recording market from the invading Japanese, selected Poitiers to be the customs bottleneck. In that small town, tens of thousands of video tape recorders built in Japan and avidly sought by French customers are currently stacking up in warehouses. A handful of customs inspectors, hand-picked for slowness, has cut the clearances from 100,000 per month down to 8,000. Francois the Hammer – is out to ensnarl Japanese producers in red tape while a company owned by the French Government can produce video tape recorders locally……Now the French binge has led to a sober second thought and a huge hangover afflicts the nation. The trade balance is deeply in the red. Only two years ago, the franc used to be worth an American quarter – soon, after an expected third devaluation, the franc will hardly be worth much more than a dime.’

Stop being silly.

Love UK.

Posted on 1/31/18 | 9:21 AM CET

ty

to compare European regulators to the SEC you need to add in all the national regulators, staff and budget. The UK FCA has a budget of £452m and many responsibilities are with the bank of england.

Posted on 1/31/18 | 10:19 AM CET

ty

or the german regulator BanFin with 2535 employees alone….The EU is not a country like the USA. there is no comparison between the SEC and ESMA…..Europe has far higher regulator budgets and people than the USA…..

Posted on 1/31/18 | 11:41 AM CET

Antoine

It is no surprise main opponents are the tax heavens of EU (Ireland, Luxemburg…) for hidden motives.

The reality is that if the EU is going to be efficient it needs to reduce red tape and reduce unethical and fraudulent activities.

As shown with many EU institutions, there is no better way than to harmonise rules and centralise the regulatory body. You then replace 28 (27) regulatory bodies by 1 and you avoid/limit value destroying activities. Big efficiency, big savings.

Of course, it is also important to have the right rules and this should be negotiated and agreed but there again, you simplify enormously regulations by having one set of rules rather than 28 (27).

This is common sense and is only resisted by lobbies with specific interests which put them ahead of the general interest.

Paris, elsewhere? As the many agencies of the EU have shown, to base it in Paris or elsewhere does not make it unfair. The EMA based in London has never given privilege to UK pharma companies.

This is all about reforming the EU. Transforming it into a fair level playing field instead of a battlefield where the rules are to beggar thy neighbour.

If we reform the EU, it will make it more attractive to the UK and it may well rejoin…

Posted on 1/31/18 | 1:43 PM CET

JPM

@Antoine “If we reform the EU, it will make it more attractive to the UK and it may well rejoin…”

If that were a concern the EU’s behaviour would be markedly different…

Instead, it seems that the EU’s legalistic and ill-humoured approach will guarantee an ever more distant relationship.

Posted on 1/31/18 | 2:30 PM CET

Saintixe

Dear @wow

France is not here to be lovely for you, foreigners!

It has to be sharp, surgical. efficient. It needs to improve its fiscal, finances, economy managements. It must belong to the 21st century and not a romantic past possible satisfactory for you but certainly pretty useless – in fact certainly worthless for its citizens.

France is not here to be patronized. France is back, slowly but steadily getting rid of all the hogwash of socialist idealism. When Socialism starts putting butter in one’s spinach without having to borrow somebody else money and without bankrupting my pocket book, we shall look at lovely. No more before.
Typical AngloSaxon disrespect.

Posted on 1/31/18 | 2:50 PM CET

wow

@Saintixe

You say typical anglo-saxon disrespect but france is trying to be like London. Macron stated it explicitly.

What do you call someone who dislikes what they are trying to copy?

Envious/Jealous/Insecure…

It’s not a good look for you!

Make your mind up.

It’s also silly it took half a millenium to make London. No amount of money would turn over 500 years of history. If the UK started saying ‘after brexit WE in UK will be CULINARY MASTERS much better than French food!’ you would quite rightly laugh. It is not our history, it is France’s great achievement.

Forgive me while I laugh… but you are all sounding very very silly right now.

Posted on 1/31/18 | 3:24 PM CET

sgu66

Saintixe

But I thought the story was about an EU institution, not France? After all, has France actually changed at all under Macron? Does it now meet all of the relevant EU standards? Is it now a driving world economy? If so, then please explain why the UK is any different? If not then surely the UK is in a better place?

Posted on 1/31/18 | 3:49 PM CET

Saintixe

@sgu66
@wow

Since I believe Britain has quite a sharp business mind, I have no issue at admitting envy. Not jealousy. Envy. I wish France was more of the same.
40 years of rampant socialism leave a deep wound.
Go on, have a go at the demented socialism which jas about ruined my country. I shall clap as in standing ovation for you guys.
Martine Aubry is a nutter. Hollande a posse petit when it comes to intellect etc etc
I want my country to rescind from the evil consequences of Mitterand years. Aside the abolition of the death penalty.

But lively is wrong. Yes it took 500 ys to build the City. And it will take quite a few generations to improve our mental outlook on the world of finances

But why should this intellectual challenge be denied to us on the ground… we are good at cooking?

Are you serious guys?.If this is not disrespect and patronizing, I really wonder as in which world you live.

France is not one year in Provence. You may entertain a quaint vision of France. But it never existed. Never.

Though I grant you we love our baguettes.

Posted on 1/31/18 | 4:32 PM CET

Merci Buttercups

Same old France will champion European solidarity always, thinly veiled as what’s best for France and Macrons ego.
The minnows of Europe will become increasingly frustrated by the double standards. France will always put their own interests first and I don’t blame them for doing so, but please don’t make out its for the greater good, because it’s clearly not, you cheeky chappies.

Posted on 1/31/18 | 9:55 PM CET

Hoser

@Saintixe
Did Mitterand invent dirigisme? I think not. Curious that English must reach for the French word to express the idea. We’re all watching Macron closely, of course. But it is rather early days’ wouldn’t you say?